Abstract
Lund (2002a) showed in a CAPM-type model how tax depreciation schedules
affect required expected returns after taxes. Even without leverage higher tax rates
implied lower betas when tax deductions were risk free. Here they are risky, and
marginal investment is taxed together with inframarginal in an analytical model
of decreasing returns. With imperfect loss offset tax claims are analogous to call
options. The beta of equity is still decreasing in the tax rate, but increasing in the
underlying volatility. The results are important if market data are used to infer
required expected returns, and in discussions of tax design.
Keywords: Corporate tax, depreciation, imperfect loss offset, decreasing returns,
cost of capital, uncertainty

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In recent years, venture capital has increasingly become a factor in the
financing of new firms. We examine how the value of mature firms determines
the incentives of entrepreneurs to start up new firms and of venture capitalists
to finance and advise them. We examine how capital gains taxes as well as
subsidies to start-up costs of new firms affect venture capital-backed
entrepreneurship. We also argue that dividend and capital gains taxes on
mature firms have important consequences for start-up firms as well.
JEL Classification: D82, G24, H24 and H25
Keywords: double moral hazard, entrepreneurship, taxes and venture capital

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We examine how a multinational’s choice to centralize or de-centralize its
decision structure is affected by country tax differentials. Within a simple model that emphasizes the multiple conflicting roles of transfer prices in MNEs — here, as a strategic pre-commitment device and a tax manipulation instrument —, we show that decentralization is preferred in case of small tax differentials, whereas centralization can be more profitable, when tax differentials are large. In essence, the organizational flexibility of MNEs is triggered by the scope for tax minimization. Our analysis allows for both commitment and non-commitment to transfer prices, and for alternative modes of competition.
Keywords: Centralized vs. de-centralized decisions, taxes, transfer prices, MNEs.
JEL-Classification: H25, F23, L23.

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This paper provides an assessment of Greenland's tax system and contemplates changes that may be
undertaken in the future to prepare for greater economic self-reliance and for the country's participation
in the wider world economy. At the outskirts of Europe, Greenland is an autonomous part of the
Danish kingdom, though currently not a member of EU. However, its cooperation with European
countries and its dependency on international trade renders it necessary for the tax system in Greenland
to be attuned to developments in the rest of the world. Drawing on a thorough international benchmarking
analysis of Greenland's tax system, the paper's special focus will be on the corporate tax system
and its interplay with personal taxation, as well on as the system of import duties. In particular, we
carry out computations of effective marginal and average corporate tax rates, as well as average effective
tax burdens on consumption, labour income and capital income, and compare these to similar
measures for EU countries. In addition, we outline how Greenland's economic policy in other areas
interferes with tax policy. Especially fishery regulation, management of government-owned companies,
and housing policy have major implications for the tax system.
Key words: international benchmarking, effective tax rates, Greenland
JEL: H20, H25

We study aggregation - or sample frequencies - of time series, e.g. aggregation from weekly to monthly or quarterly time series. Aggregation usually gives shorter time series but spurious phenomena, in e.g. daily observations, can on the other hand be avoided. An important issue is the effect of aggregation on the adjustment coefficient in cointegrated systems. We study only first order vector autoregressive processes for n dimensional time series Xt, and we illustrate the theory by a two dimensional and a four dimensional model for prices of various grades of gasoline.

Asymmetric information and fear of acquiring a 'lemon' may explain the
paucity of foreign investment in emerging market economies. If investors
are uncertain about the profitability of investments, intrinsically inefficient,
temporary partnerships or joint ventures may serve as mechanisms through
which information is transmitted. Temporary partnerships with joint in-
vestments by the domestic firm and the foreign investor, together with a
buy-out option to the investor, can be used to separate good and bad invest-
ment prospects in equilibrium. However, non-revealing equilibria may exist.
Implications for foreign direct investment are traced and briefly related to
the experience of transition economies.
Keywords: investment, complementary assets, partnerships, joint ventures
and licensing, costly signaling
JEL: D8, F2, L14, O12

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Samuelson (1958) analyses a three-period model, whereas Diamod (1965) considers a two-period model. This difference poses the question whether the insights derived by analysing the simple two-period model carry over in the more complicated three-period case. They do. The Samuelson model (no productive capital) has only one positive solution (r = n); however, this root is unstable. The Diamond model (no nonproductive abode of purchasing power) has also only one positive solution; the root is stable but inefficient. In a model with both productive capital and a non-productive abode of purchasing power, the inefficient Diamond solution becomes unstable and the socially optimal solution becomes stable.

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This paper develops a general equilibrium search and matching
model where an underground economy co-exists along with the formal
part of the economy. In analyzing how tax and punishment policies
a¤ect labour market performance, we find that punishment of infor-
mal sector activities induce workers and firms to reallocate towards
the formal sector. However, more importantly, we find that this real-
location tends to improve e¢ ciency in search, reduce the overall wage
pressure, and reduce actual unemployment.

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Levy and Arditti (1973) introduced depreciable assets into the Modigliani and
Miller (1958) model, and analyzed the implications for the cost of capital. Assuming
that the firm reinvests indefinitely to maintain a constant expected cash flow, they
found that depreciation increases the cost of capital before and after tax. Most of
their assumptions are maintained. However, commitment to perpetual reinvestment
is in most cases not a reasonable assumption. Without it, depreciation decreases the
cost of capital before and after tax. The effect of depreciation is less in absolute value
than in Levy and Arditti, but not insignificant.
Keywords: Cost of capital, depreciation, corporate taxes
JEL classification numbers: G31, H25

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A number of influential studies have documented a strong value premium for US stocks over the period 1963 to 1990 (Fama and French (1992), Lakonishok et al. (1994)). Stocks with low price-earnings multiples, price-book values and other measures of value are reported to have given a higher mean return than the high multiple growth firms. Work by Basu (1997) and others have shown that the value dominance is also a feature of the earlier market history of the United States. The value premium is reported also to exist in a number of other countries over the period 1975 to 1995 (Fama and French (1998)). The results for these markets are based on Morgan Stanley (MSCI) data. Since these data are softer due to a relatively short time horizon and due to a small number of stocks in some cases down at 10 stocks, the conclusions are likely to be less robust. There is therefore a need for more research on this issue. The purpose of this paper is to report evidence for the Danish stock market and to test whether the value premium is a genuine long-term feature of the market or just a phenomenon that pops up now and then. To research this issue we have collected accounting and stock market data for more than half a century. We report in particular on the insights obtained when portfolios are formed on the basis of the price-earnings multiple. The paper shows that there is a value premium. The paper also analyzes whether the premium is likely to be due to risk (Fama and French (1992,98)) or mispricing as emphasized by the Behavioral Finance School (Chan et al. (2000), Lakonishok et al. (1994) and La Porta et al. (1997)).

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We compare investments in generating capacities of an integrated monopolist with the aggregate investments of two vertically integrated competing firms. The firms invest in their capacity and fix the retail price while electricity demand is uncertain. The wholesale price is determined in a unit price auction where the firms know the level of demand when they bid their capacities. Total capacities can be larger or smaller with a duopoly than with a monopoly. If the two firms select the Pareto dominant equilibrium, then the retail price is always higher and the social welfare lower in the duopoly case.

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We exploit the regional variation in negative attitudes towards immigrants to Sweden in order to analyse the consequences of the attitudes on immigrants welfare. We find that attitudes towards immigrants are of importance: they both affect their labour market outcomes and their quality of life. We interpret the negative effect on wages as evidence of labour market discrimination. We estimate the welfare effects of negative attitudes, through their wage and local amenities, for immigrants with different levels of skills, origin, gender and age.

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While examining the macroeconomic effects of increased government
control of the informal sector, this paper develops a two-sector
general equilibrium model featuring matching frictions and worker-
firm wage bargaining. Workers search for jobs in both the formal
and the informal sector. We analyse the impact of higher punishment
rates and a higher audit rate on labour market performance. We find
that a higher punishment rate reduces the size of the informal sector
and reduces unemployment. A higher audit rate has an ambiguous
impact on unemployment, and may actually increase the size of the
underground economy.
JEL-codes: H26
Keywords: Tax evasion, underground economy, matching, bargaining,
unemployment.